Pound weakens slightly against the euro

The pound weakened slightly against the euro yesterday as more positive news from the eurozone increased investor appetite for the single currency. A report released by the European Commission yesterday showed improved economic sentiment in the region, as the index rose from 64.7 points in March to 67.2 this month, much better than the 65.2 points analysts had predicted. Moreover, European equity markets rose following solid first-quarter profits of £2.26 billion from Royal Dutch Shell and £1.9 billion from Spanish banking giant Santander, which further improved appetite for the single currency as investors speculated that the a tentative economic recovery in the eurozone may be underway.

However, the euro’s gains were capped yesterday as better-than-expected retail sales data released by the CBI on Tuesday improved investor sentiment that the UK may be coming out of recession. In addition, news of strong demand at a UK gilt auction earlier this week, the first since UK Chancellor Alistair Darling announced a record high £220 billion issuance for the coming fiscal year in the budget last week, buoyed investor mood. Finally, speculation surrounding what measures the European Central Bank intends to implement at their next policy meeting hampered the euro’s gains, as investors in the eurozone speculated that the bank could announce a quantitative easing program similar to the one that appears to be working in the US. Indeed, the US Fed last night voted to leave their stimulus measures unchanged, sighting tentative “green shoots” in the global economy, therefore making it increasingly likely the ECB will follow suit to get the region out of recession. As a result, continued speculation over what the bank will decide, together with positive economic data released on both sides of the English Channel, capped the single currency’s gains against sterling, although it still finished the day up at 1.1122.

There are a couple of pieces of important economic data out in the eurozone and UK today. In the eurozone March’s Unemployment Rate is released at 10.00 BST, whilst in the UK Year-on-Year Nationwide House Prices data for March is due today.